Buying Stock to Pay off Debt-Mistakes I’ve Made or I’m a Genius

In the beginning of 2014, I realized I needed to make a goal about paying off debt. It’s one thing to say I want to pay off my credit card, it’s another thing to say I will pay off my credit card by May 1, 2014 and here is my plan to pay off that 3 3/8 x 2 1/8 inch of piece of plastic, that’s the actual size of a credit card, fun fact of the day.

So that’s exactly what I did I made a plan and I wrote a post-it note on my piggy bank on my dresser, thanks housemom! It says pay off my Discover Student Loan by May 22, 2014. So I set up my BUDGET and then did some simple math. I said ok, let’s assume this loan doesn’t have any interest( keep it simple), what total would I need to this off? I mean $20 each month from my $250.67 monthly payment for interest at this point was the least of my concerns it’s the $9,000 I owe.

Monthly Student Loan Payment

So out came the spreadsheet, I figured out that if took 8 months which is until May, I would need about $1200 each month, to some people that’s a small amount to other’s that’s large amount and to me it was neither, it is exactly what I needed to never pay $250.67 monthly payment to some large corporation. This used to be with Citibank, let’s just say I’m not a fan. Take that back they are my arch nemesis, the Captain Pollution to my Captain Planet, the Newman to my Seinfeld, the Bane to my Batman, OK small rant over, but man they really grind my gears…….

Payoff Plan

The plan. I needed to come up with $900 extra every month or about $7200 total to pay this off and take down Captain Pollution, Newman, and Bane at the same time. I knew what I needed to get it done, now the hard part, what was I going to do to come up with this money. I started breaking it down even further, brainstorming on how I was going to cutback, but that can get only get you so far, I also needed extra money. I started with what I know, I needed to step up my eBay store that I run. I can work OT from time to time, that should help out and maybe I’ll even get a bonus. Taxes, we should be getting tax money back, I’m using all of that return to pay this off. What about stopping 401K? Dave Ramsey says to stop your 401K and pay off your debt. In a word, no; I’m against his philosophy despite being a Dave Ramsey Disciple(Patent Pending, jk). I found other ways to cut though, I was building my emergency fund and it had already reached the $1000 starter emergency fund that many recommend, so I stopped allocating there and moved it towards my student loan debt. I started putting everything together and while there was some variables on how much Overtime, Bonus, eBay, Tax Returns, Extra Savings, it was all there it could really happen, this deserves an exclamation point!

Then it happened. I had extra money that was just sitting in my savings account. I started off with a big payment pretty quickly so I was on track towards my goal, then I had a small amount and I started thinking, what if this doubled in the stock market? I could take $500 and turn it into $1000(Mistake #1 Thinking you are Warren Buffett), I’ll keep the money in there for a short period of time(Mistake #2 Timing the Market) and cash out to pay off my debt…..Genius!!!!

That’s what I did I bought a company, very risky without any profits, mostly sales(Mistake #3 A company not making money is probably bad) called MusclePharm, which on there website state “MusclePharm® provides sports nutrition products and supplements for athletes of all kinds. Including pre-workout, protein powder, and post workout drinks”. I mean they were in the process of coming out with a new line of Arnold Schwarzenegger protein powder, this guy is the Michael Jordan of Bodybuilding and Jordan did OK with Nike…….RIGHT?!?! I wanted my money to double, let’s buy some Yachts this is going to be huge.

I lost some money, the stock went down, come on Arnold lift this back up with those huge biceps of yours. The Arnold numbers were coming out soon so despite the loss, I took another $500 and bought some more(Mistake #4 Chase good money with bad). The positive about this was I was able to buy more shares and bring my average cost per share down to a lower number. I was waiting on a big announcement of earnings and revenue and most importantly waiting for my stock to go up, I planned to sell right around April to pay off my student loan debt. I bought some more another $400 worth just to hit that upswing of money that was going to be rolling in(Mistake #5 Thinking you know what is going to happen in the stock market).

Buying Musclepharm

So what happened with the big earnings announcement, nothing really; Musclepharm is just kinda hanging out flexing in the mirror, waiting on its next set of Bicep curls(Here’s a nice review of the stock by Seeking Alpha. Then I made a decision, I wasn’t going to sell my stock, especially at a loss. I was able to save enough money besides the money I foolishly put in the stock market to pay off my debt and made a payment to pay off the whole thing. I’m just waiting for the statement to read $0.00 after my payment hits the account(actually those jerks don’t even show the $0.00, it just says apply for a new loan….NEWMAN.

Did I do the right thing in investing in the stock market to pay off debt? What would you have done differently? Has anyone had success or failure with something similar?

I believe putting too much emphasis on the potential of a company that is struggling is too risky specially if you are trying to get rid of debt. If you have play money and want to use it to gamble on the potential go for it. But if you need the money to pay off debt go for a safer company or leave your money in a savings account otherwise you risk paying off less money on your debt.

MSLP??? Live and learn I guess. Why not put a few dollars towards a nice dividend growth portfolio. Start now, contribute regularly, re-invest dividends, and let the magic of compounding work for you. Of course, reducing or eliminating any current debt you have should be done first.

I think the best way to pay off debt is to 1) stop borrowing money and then 2) send the cash you have and earn toward it til it’s gone. So no, I wouldn’t have (and didn’t) tried to get it paid off faster with a risky investment. To me investments are for the long term; anything else is betting or just having fun.

Step 1 is complete. Step 2 for is definetly more difficult for me, I”m a gambler and entrepreneur at heart, so I’m always trying to make more money, even if it’s a little risky. I’m getting better, I just sent my April Savings/Cash to make a big payment on my student loan! Thanks for the advice.

Hey Even Steven! Thanks for sharing this story – I think its a pretty common approach that lots of people try, especially when first starting out investing, including all the mistakes you highlighted. I’ve definitely made all those same mistakes at various times! I’d say trying to make quick money in shares is pretty dangerous – especially if you’re counting on that money for something important. If you’re trying to pay off a longer-term debt like a mortgage where the specific timing is less important, and you’ve got a solid investment plan (even if it does involve speculative companies), it could possibly be a good strategy. The best part of all this is you’re clearly aware of the specific mistakes you made above, and no doubt learnt some useful lessons from the process!Jason @ Islands of Investing recently posted…What’s a ‘P/E ratio’? (Part 3) – Potential pitfalls and a real life example

[…] during the crisis because eventually everything has come back, also making sure you stop trying to outsmart the market, the person in the mirror can screw it up even more. This is one of the reasons my retirement […]

[…] to think about how I have been paying off debt. I paid off one of my student loans in less than 7-8 months at a little over 9K, I only had one focus, Axe the Debt like Ragnar. It didn’t matter if I was making 100K or 50K, […]

[…] I only paid the minimum payments up until 2013, that’s when I started making goals and debt repayment milestones. For 7 years I deferred payment, asked for forbearance, and made minimum payments. As you can […]

Some of the links and ads displayed on Even Steven Money are affiliate links and I may get compensated if you click on the link and sign up or make a purchase through the link/advertisement found on my site. If you do, thank you for your support and help in keeping the lights on!

All information provided on this site is for informational purposes only. EvenStevenMoney.com makes no representations as to the accuracy, completeness, suitability or validity of any information on this site and will not be liable for any errors or omissions in this information or any damages arising from its display or use. As with all financial matters, proceed with caution and make sure to do your own research and seek professional advice.